D.Comm. (Economic and Management Sciences) / The objective of this thesis was to examine the dynamics of Mexico's external economic relations during the period 1968-1995. Since the early seventies, the workings of the international monetary system has been governed Illore by implicit rules and conventions based on sound market principles than rules as were the case under the fixed exchange rate system of Bretton Woods. These "rules of the game" dictated that if a country wanted to be part of the global village and reap the benefits thereof, such a country should adhere to market forces and administer its monetary-fiscal policy in such a way as to ensure that the delicate balance between the domestic and international economic environment is maintained. In the event of a deviation from these rules, a country, in this instance Mexico, would fmd itself in a .position where it is heavily penalised for not playing according to the rules of the game. Starting in 1976, the Mexican economy was characterised by ongoing exchange rate crises, which seemed to be a recurring phenomenon repeating itself more or less every six years. Time and again a misalignment in Mexico's monetary-fiscal policy led to a build-up of pressures and tensions in the external accounts of the country, especially the balance of payments and eventually disruption of the economic growth process and relations with the external world. The Mexican economy was time and again subject to a rapidly growing current account deficit, rising external foreign debt, a rising overall fiscal deficit fuelled by - xiii - expansionary government expenditure policies and the slavish adherence to a fixed exchange rate regime. The growing fiscal deficit was in all instances financed by either increased short-term, highly volatile portfolio capital, or a depletion of the country's gold and foreign reserve holdings. The discovery of large oil reserves in 1978 lessened the need for structural adjustment and the following of more prudent policy measures. Rising domestic inflation and the fixed exchange rate gave rise to an ongoing real appreciation of the peso, which undermined the competitiveness of the domestic economy and distorted the balance between domestic savings and consumption. The appreciation of the peso and the high import propensity of the domestic households led to sharp increases in imports and rather static export earnings. The vulnerability of the domestic economy was exacerbated by developments in the country's external environment. These exogenous shocks took the form of either a decline in the international oil-prices and/or a more hostile international financing environment characterised by higher .interest rates and stricter borrowing requirements. The combination of domestic financial tensions and negative developments in the country's external environment were often, especially in 1994, accompanied by domestic political upheavals. . Time and again the apparent unsustainable domestic and external disparities and the heavy reliance on speculative foreign funding led to a change in investor views of the future of the Mexican peso. Capital flights and continued speculation eventually led to a situation where the authorities could no longer manage to maintain the parity of the peso. The market subsequently forced a devaluation and/or depreciation of the peso. The exchange rate crises of 1976, 1982, 1986-87 and 1994 appear to have been the result of a monetary-fiscal policy stance in which the government played a relatively central role. The role of the government and its hold over the Bank of Mexico led to a situation where the Mexican economy was out of touch with developments in its external economic and financial environment. Interesting though, is the way in which the government, especially the Salinas administration, refused to follow a more marketoriented macroeconomic policy with reference to the exchange rate regime and monetary-fiscal policy in general. As the events that led to the collapse of the peso in - XIV - 1994 unfolded, it became evident that the overvalued peso was maintained solely for non-economic reasons. The manner in which the new Zedillo administration reacted to the sharp depreciation of the peso in 1994and 1995 greatly influenced the further deterioration of the peso and Mexico's international position. The main objective of the international assistance provided to Mexico by the United States, the International Monetary Fun~ and other international institutions during the course of 1995 was to underpin the continued deterioration of the peso and the overall well-being of the Mexican economy. Although the Mexican authorities are bound by the conditions tied to the foreign fmancial assistance provided and are at this stage following a more market-oriented, less regulated economic policy, it remains to be seen whether the authorities will in future adhere more closely to the rules of the game of the international monetary system as embodied in the conventions dictated by the global village market.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:uj/uj:3809 |
| Date | 11 February 2014 |
| Source Sets | South African National ETD Portal |
| Detected Language | English |
| Type | Thesis |
| Rights | University of Johannesburg |
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